November 6th, 2018
"Patient vs. Provider Incentives in Long Term Care"
We study how patient and provider incentives affect the mode and cost of long term care. Our analysis of 1 million nursing home stays yields four main insights. First, Medicaid-covered residents prolong their stays instead of transitioning to community- based care due to limited cost-sharing. Second, nursing homes shorten Medicaid stays when capacity binds to admit more profitable residents who pay out-of-pocket. Third, longer stays for marginal Medicaid beneficiaries do not improve health outcomes on average, pointing to annual overspending of $0.9bn. Fourth, transitioning from per- diem to episode-based provider reimbursement is more effective than increasing resident cost- sharing in shortening Medicaid stays.